As fiduciary debate slogs on, both sides will be dragged through the mud

The endless debate over investment-advice standards will continue through at least the end of the year, thanks to the Labor Department’s review of its fiduciary rule. As the conflict slogs ahead, an industry leader and some advisers worry that both sides will be dragged through the mud.

Along the way, we’ll have the umpteenth round of the fight over who is looking out for “Main Street” and who is doing the bidding of “Wall Street.” That’s a schism that concerns Blaine Aikin, executive chairman of Fi360, a fiduciary training and credentialing firm.

He agreed with the Obama administration’s efforts to couch the rule as helping Main Street investors because it helped get it across the finish line to finalization last year. But that effort came with a cost.

“In order to get the rule through, that’s a strong card to play,” Mr. Aikin said at Fi360’s annual conference last month in Nashville. “But it does hurt our reputation. It does damage to everyone involved in financial services.”

Investors will get lost in all the noise and then “we all get painted with the same brush,” Mr. Aikin said.

“It’s fine to call out the importance of the fiduciary standard but the divisive type of rhetoric we often use ultimately is not helpful,” he said. “It’s much better for us to concentrate on elevating the profession than it is to further promote the idea of financial services being worthy of a low reputation.”

Advisers at the Fi360 conference shared Mr. Aikin’s assessment.

“All of us in this industry are suffering from fiduciary fatigue,” said Roger Levy, managing director of Cambridge Fiduciary Services. “This concept of who is a fiduciary has been argued every which way. We still don’t have an answer to the question, who can you trust?”

FIGHT JUST GETTING STARTED

More evidence that the fight is just getting (re)started can be found in today’s Wall Street Journal, where Eugene Scalia, a top securities lawyer who is leading industry-group plaintiffs in a lawsuit against the DOL regulation, reasserts that the agency lacks the authority to promulgate the measure. He criticizes it for creating a “private right of action” that allows investors to file class-action suits against financial firms when they believe that their advisers have not acted in their best interests when it comes to retirement-savings portfolios.

This is among the arguments that a Dallas federal court eviscerated earlier this year in upholding the rule. Mr. Scalia is posing his thesis again, as the case heads to an appeals court and the DOL reassesses the fiduciary rule under a mandate from President Donald J. Trump that could result in its modification or repeal.

Labor Secretary Alexander Acosta has reopened a comment period about the rule and has indicated that it doesn’t fit well in Mr. Trump’s regulatory philosophy.

Now, we’re beginning to see the first of what will likely be many analyses purporting to show that the measure is harming small investors. Next will come more comment letters from advocates warning Mr. Acosta against making fundamental changes in the regulation.

CONSUMERS DON’T FOLLOW

David Roberts, director of fiduciary and investment compliance at Unified Trust, said that consumers don’t follow each skirmish in the war.

“The consumer doesn’t understand the minutaie about the debate,” he said. “Why does it take 400 pages of federal code to explain the right thing to do? They don’t know who to believe, so they throw up their hands.”

If investors are frustrated now, just wait until the Trump DOL comes out with an overhaul of the rule later this year. They’ll be barraged with reaction from both sides.